Abe Shinzō’s Comeback and Japan’s Outbound M&A

Apparently, someone has taken the time to count all the Japanese books with titles alluding in some way to the “ruin” of Japan—and the number of such titles is astounding. I recall that this same person wrote that, with all of these dire predictions about Japan’s future, it is strange that the country has managed to survive, nevertheless.

Perhaps as a result of this habit of viewing Japan’s prospects pessimistically, which has already become a sort of national pastime, Japanese journalists, pundits, and others have neglected an important recent trend—which is perhaps why it has also been overlooked by foreign correspondents in Tokyo.

A Historic Expansion for Japanese Firms

The trend to which I am referring concerns the large number of overseas mergers and acquisitions recently carried out by Japanese corporations. This wave of M&A activity is moving at a record-setting pace. The future of the Japanese economy may look dim from a macroeconomic perspective, but a different picture emerges if we bear in mind that this appetite for overseas acquisitions is a sign of the strength of the Japanese corporations that play a leading role in bolstering their home economy. Indeed, the M&A appetite among Japanese firms is stronger than ever.

The reason for the M&A surge, needless to say, is the strong yen. Given today’s exchange rates, overseas corporations around the globe look like bargains to Japanese firms. According to statistics gathered by the Japan External Trade Organization, for the first half of 2012, direct Japanese investment in the United States totaled around $16.27 billion. If this figure is extrapolated to cover an entire year, it would rival the highest annual amount recorded to date of approximately $44.67 billion in 2008.

Looking outside the United States, a record-breaking year is in store for Japanese M&A activities in Vietnam, which saw around $1.78 billion in investment for the first half of 2012, and for Australia, where Japanese firms invested $7.88 billion for the same period. Japanese investment in the Netherlands and Britain is not far from record highs. These statistics reveal, in fact, that Japanese corporations over the past five years have been undergoing a historic expansion.

This overseas investment also has geopolitical implications. Japan is not giving up on the future potential of the US economy and still stakes its future prosperity on that of the U.S. In Australia, meanwhile, most of the Japanese investment has been related to natural resources, and it is good for Japan to be viewed by the Australians as a country they can count on. The strong Japanese interest in Vietnam acts as a counterbalance to concerns about investment stability in China.

M&A Cured Abe Shinzō

One sector that has been particularly active in M&A is Japan’s pharmaceutical industry. The most well-publicized example was the purchase of the Swiss pharmaceutical company Nycomed by Takeda Pharmaceutical in 2011 for the massive sum of around $1.2 billion—but there’s another interesting case worth mentioning.

In September 2009, Zeria Pharmaceutical, a Japanese firm known for medication that treats digestive problems, acquired the Swiss company Tillotts. Soon after that acquisition, Tillotts’s medication, Asacol, used to treat ulcerative colitis and Crohn’s disease, became available in the Japanese healthcare market.

One person who has benefited from this drug is Abe Shinzō, the current leader of the Liberal Democratic Party. Thanks to Asacol he has seen a dramatic improvement in the chronic ailment he has suffered since his youth, which forced him to resign as prime minister in 2007. He now has his sights on becoming prime minister again. Therefore, to a certain extent, Japan’s surge in overseas M&A is behind this revived political career. It goes to show that we have seen considerable dynamism from Japanese corporations.

(Originally written in Japanese on September 28, 2012.)